Let me begin by noting that the soaring growth of communications is an engine that drives our developing information economy.  New communications technologies, including advancements in electronic mail, wireless telephones, and the Internet, are essential to new methods of business, education, and entertainment.  Our economy depends upon readily available and reliable communications systems for its most basic functions.  This has several consequences.  First, we must be careful not to stifle the growth of communications technologies through undue government action.  Second, we must ensure that emerging communications technologies are as reliable and safe to use for business, education, and entertainment as the methods of communication we have used in the past and that are still in use.  Third, we must take a technology-neutral approach, to the degree it is practical, when considering appropriate governmental action.

The increasing globalization of communications entities and facilities has significant consequences.  The trend implicates a variety of complicated legal and policy doctrines, including issues relating to national security, the protection of the privacy of U.S. consumers and businesses, and the integrity of domestic law enforcement operations.  Due to the growing importance of communications, the U.S. Government should ensure that the communications infrastructure remains safe to use when it is owned, controlled, or operated by non-U.S. entities, especially foreign governments.  We must ensure that individuals and businesses can communicate privately, and with the expectation that if their privacy or security is harmed through the illegal use of communications, that law enforcement can apprehend those responsible and bring them to justice.  In addition, we must also ensure that globalization does not hinder our responsibility to protect our citizens by blocking national security and law enforcement investigations.

The challenges and risks created by foreign ownership interests and foreign government ownership interests in our communication infrastructure, as well as those created by the globalization of the communications infrastructure, are discussed at greater length by Lawrence R. Parkinson, General Counsel of the Federal Bureau of Investigation (“FBI”), in his testimony today.  As Mr. Parkinson testifies, these challenges and risks are very real and may adversely affect the privacy of our citizens, and our obligations to preserve the national security and enforce U.S. law.  Moreover, as Mr. Parkinson also notes, the President over two years ago in Presidential Decision Directive (“PDD”) 63 established the national security objective of protecting US cyber and information networks from attack or disruption.  This is an important goal for the Administration, and the Administration reviews potential foreign acquisitions of both telecommunications and internet providers with PDD-63 in mind.

As the federal government examines the appropriateness of foreign ownership interests, especially foreign government ownership interests, in our communications infrastructure, we must ensure that risks are minimized and that challenges are met.  In addition, the government must consider the risks posed by the globalization of U.S. communications infrastructure, especially the risk that specific activities will destabilize the infrastructure.  These risks must be addressed if law enforcement and national security agencies are to have the tools and capabilities to enforce laws against espionage and invasion of privacy, to satisfy our responsibility to conduct effective and secure legally authorized investigations of criminals who use telecommunications to aid their illegal activities, to conduct national security investigations, to ensure effective emergency preparedness, and to protect public safety.

What protections, then, are necessary to defend national security, the privacy of our citizens, and public safety?  There  are many different technologies, business structures and other factors presented by each foreign investment.  These variations make it impossible to identify a single solution for all companies and all transactions.  As a result, we have worked with individual companies to develop solutions that protect national security, the privacy of U.S. citizens, and public safety in a manner that is least disruptive to the companies involved.

First, one of the requirements fundamental to preserving national security, the privacy of U.S. citizens, and public safety is ensuring that U.S. national security and law enforcement agencies are able to securely and effectively use lawful process to gather information during investigations.  For example, whether we are conducting an investigation of a foreign spy or an alleged drug dealer, we must be able to conduct court-authorized interceptions, acquire stored communications, obtain subscriber data, and access any and all records and information when authorized by law and with appropriate process.  The Department of Justice believes that it is critical to national security and law enforcement investigations that a foreign-owned or controlled company to ensure that U.S. court orders and statutory authorities are not rendered ineffective by foreign ownership interests.

Second, it is critical that foreign-owned and controlled communications companies protect the privacy of U.S. communications and customers and do not leave inert the statutory protections of privacy under U.S. law.  The Department of Justice and the FBI have worked with providers to ensure that an investing foreign entity will take appropriate steps to prevent access to equipment and facilities under its control that could be used to monitor U.S. communications in violation of federal or state law.  We also have worked to ensure that there will be no unauthorized or illegal sharing of subscriber information and related records regarding U.S. customers as a result of the foreign ownership interests or foreign-located facilities.  Our goal is to prevent foreign governments, foreign companies and affiliates, or persons abroad from obtaining unlawful access to the communications and information about our citizens.

Third, we must work to protect the integrity of U.S. law enforcement and national security investigations, foreign control notwithstanding.  For example, we have worked with companies to find effective means to ensure that classified or sensitive information is not disseminated.  As Mr. Parkinson testifies, when foreign government-owned or controlled companies are those investing in the U.S. communications infrastructure, we must act carefully to protect our citizens and their privacy.  In addition, as our infrastructure gains global capabilities, the risks to the integrity of U.S. law enforcement and national security investigations is increasing.  For example, when emerging technologies such as wireless and satellite communications systems are configured in such a way that the communications of U.S. customers are processed entirely at facilities located abroad, there is a risk that we cannot protect our citizens’ communications and privacy.  There is also a risk that, when the most heinous of crimes occur, we will be unable to properly investigate and prosecute the parties responsible.

The Department of Justice and the FBI, with the Department of Defense, have attempted to address the challenges created by increasing foreign ownership interests in U.S. communications systems and the globalization of communications systems. In my testimony, I focus on the foreign ownership interests.  As ownership interests, mergers, and acquisitions present these issues, we always keep foremost in our minds the need to balance the value of a free marketplace, to encourage continuing innovation in communications technologies, with the protection of the public’s privacy, safety, and security.  In each case, we use available legal tools to seek a solution tailored to the specific concerns presented by the foreign ownership interests presented.  We are cognizant that the relevant facts surrounding the ownership interests, business plans, system infrastructures, and technologies can vary significantly and in material respects.  In some cases no action may be necessary; in other cases, tailored protections can alleviate privacy, public safety, and national security concerns.

Because of the wide range of possible circumstances, it has not been feasible to identify a precise and fixed set of criteria that each proposed foreign investor must satisfy in order to adequately protect the citizens of the U.S.  Accordingly, the Department of Justice and the FBI analyze a large number of factors in each instance where foreign ownership potentially threatens the government’s ability to satisfy its national security and law enforcement responsibilities to the public.

The factors we consider include, but are not limited to, the following:

• Does the proposed ownership interest create an increased risk of espionage and foreign-based economic espionage against U.S. companies and persons?
• Does the proposed ownership interest compromise our ability to protect the privacy of U.S. citizens and their communications?
• Will U.S. national security, law enforcement, and public safety capabilities be impaired by the proposed foreign ownership interests?
• Does the company have existing policies for protecting privacy, handling classified information, and complying with lawful process?
• Does the company have a good record of complying with lawful process relating to national security and law enforcement capabilities?
• What is the degree and nature of the proposed foreign control?
• If the ownership interest is transferred to a foreign entity, do we have adequate assurances that National Security Emergency Preparedness and U.S. Infrastructure Protection requirements are met?

Analyzing these and other factors, we have been successful in negotiating narrowly tailored solutions to concerns regarding privacy, public safety, and national security that are presented by the particular foreign ownership interests.

Our efforts to protect these critical values have relied upon two existing fora.  In certain circumstances, foreign companies investments in U.S. communications companies, like domestic acquisitions, are subject to review by the Federal Communications Commission (“FCC”) and/or the Committee On Foreign Investment in the United States(“CFIUS”)1.   These processes allow the federal government to review whether a proposed ownership interest violates the FCC’s public interest standard or threatens national security in such a way that the President should, on the recommendation of CFIUS, suspend or prohibit the transaction, respectively.

For example, before a telecommunication company may acquire control of facilities or transfer control of a license under Sections 214 and 310 of the Communications Act, it must first obtain from the FCC a certificate that the transfer or acquisition is consistent with the present or future public convenience and necessity.  The FCC has the power to issue such a certificate or refuse it, “and may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may require.” 47 U.S.C. § 214(c).  In addition, Section 310(d) provides, in pertinent part, that "[n]o construction permit, or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby." 47 U.S.C. § 310(d).

In analyzing proposed foreign ownership interests in or transfer of control of U.S. companies, the FCC considers several public interest factors.  The factors include the effect of the proposed transaction on U.S. national security, law enforcement, competition in the U.S., trade, and policy concerns, in determining whether a transaction is consistent with public convenience and necessity.  The FCC has stated it accords deference to other Executive Branch agencies with respect to the identification and interpretation of issues of concern related to national security, law enforcement, and foreign policy that are relevant for a particular application.  See e.g., Amendment to the Commission’s Regulatory Policies to Allow Non-U.S. Licensed Space Station to Provide Domestic and International Satellite Service in the United States, 12 FCC Rcd 24094, 24171 (1997)(“Disco II Order”); In the Matter of Rules and Policies of Foreign Participation in the U.S. Telecommunications Market, 12 FCC Rcd 23,891, 23,935 ¶ 97 (1997).  The Commission’s public interest analysis includes input from agencies such as the Department of Justice, the FBI, and the Department of Defense, each of which has unique expertise regarding national security and public safety.

The Department of Justice and FBI take seriously their responsibility to evaluate the national security and public safety concerns that might be present in foreign ownership applications pending before the FCC, and to work creatively to find solutions.  There have been several applications at the FCC in the last two years that involved foreign ownership interests or other foreign elements that potentially impaired the interests of U.S. citizens.  Both the Department of Justice and FBI have requested that the FCC not grant these applications until the companies involved committed to take certain steps that would protect the U.S. public.  I am quite pleased to say that those companies have worked with us to find solutions, and have entered into agreements with the Department of Justice, the FBI and the Department of Defense to reduce the threat of the transaction on the U.S. public.  The FCC, in turn, has granted those companies’ licenses and applications on the condition that they comply with the agreements.

As I noted above, we believe it is important to tailor solutions to the relevant concerns.  Therefore, in our efforts to formulate solutions with the companies, we seek only that which is necessary to preserve national security, the privacy of our citizens, and public safety.  The Department of Justice and the FBI recognize the many -- and sometimes competing -- interests involved with foreign ownership interests in our telecommunications infrastructure.  In fact, we rejected several commitments proposed by companies because those commitments went far beyond what we deemed necessary.

Before leaving this discussion of the FCC process, I would like to comment on some pending legislation that, as an unintentional byproduct, threatens the framework I have discussed.  Our ability to protect the public interest through the FCC process has proven to be an effective tool to ensure that foreign ownership interests in U.S. telecommunications companies do not harm our citizens.  Our ability, however, may be adversely affected by legislation pending before Congress.  S. 467 limits the time in which the FCC must rule on transfer of control applications that come before the agency, while H.R. 4019 eliminates the FCC’s use of the public interest determination in merger applications.  The Administration has opposed both of these bills because of their severe ramifications on our efforts to protect national security, the privacy of our citizens, and public safety, and to promote local competition and universal service.  It is critical that we continue to safeguard our national security and the integrity of our infrastructure.  Establishing an inflexible time frame for FCC action, with little consideration of national security and law enforcement concerns, does not provide a safeguard.  Eliminating the public interest standard altogether essentially eliminates any safeguard we might have against the risks posed by foreign ownership interests in our critical infrastructures.  As more foreign-owned and foreign government-owned companies gain ownership interests in our communications infrastructure, the necessity to protect our citizens and our national security will only increase.  The Administration looks forward to working with Congress to protect and preserve national security, the privacy of our citizens, and public safety, and to promote local competition and universal access.

Let me briefly address one other mechanism that allows the federal government to review foreign investment in U.S. telecommunications and Internet companies – the CFIUS process.  This mechanism empowers the President, for national security reasons, to suspend or prohibit an acquisition of a U.S. company by a foreign company or government. See Section 721 of the Defense Production Act (“Exon-Florio” provision), 50 App. U.S.C. § 2170.  As a member agency of CFIUS, the Department of Justice has raised and will continue to raise national security concerns that arise out of proposed foreign ownership interests in our communications infrastructure that come before CFIUS.  We believe that such vigilance is warranted in order to protect national security interests.

Of course, given the quick-changing nature of the marketplace and technology, the Department of Justice and the FBI will continue to evaluate and work closely with companies with pending foreign ownership issues to identify new or different approaches to protecting national security, the privacy of our citizens, and public safety.  In particular, the Department of Justice intends to continue to evaluate how specific foreign government ownership interests, as well as other foreign ownership interests, in our communications infrastructure affect these three concerns.

I want to thank the Committee again for asking me to present the Department’s views on foreign ownership interests, especially foreign government ownership, of the United States’ communications infrastructure.  I am pleased to answer any questions you have.